Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 969: Positional Preferences and Efficiency in a Dynamic Economy
Thomas Aronsson (), Sugata Ghosh () and Ronald Wendner ()
Additional contact information
Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Sugata Ghosh: Department of Economics and Finance, Brunel University London, U.K.
Ronald Wendner: Department of Economics, University of Graz, Austria
Abstract: Based on an endogenous growth model, this paper characterizes the conditions under which positional preferences do not give rise to intertemporal distortions as well as derives an optimal tax policy response in cases where these conditions are not satisfied. In our model, individuals can be positional both in terms of their consumption and wealth, the relative concerns partly reflect comparisons with people in other countries, and we distinguish between a (conventional) welfarist government and a paternalist government that does not respect positional preferences. We also extend the analysis to a multi-country framework and show that Nash-competition among local paternalist governments leads to a global social optimum, whereas Nash-competition among local welfarist governments does not.
Keywords: Positional preferences; efficiency; intertemporal distortions; welfarist government; paternalist government; endogenous growth
60 pages, January 30, 2020
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